Broken Trust: Protect Your Church from Embezzlement

Jim, a local police officer nearing retirement, was an usher at his church for over fifteen years. The community trusted Jim, and the church leadership gave him the responsibility of counting the offerings after services each Sunday. No one even imagined that Jim would steal money from the collection plate. Until, that is, a surveillance video showed Jim pocketing cash when he thought nobody was looking.

Sadly, Jim’s story actually happened and is far from an isolated incident. Billions of dollars are stolen from churches every year by trusted individuals within the church. Does your church have safeguards in place to prevent theft?

Embezzlers do not look like criminals. They are trusted individuals with access to church funds, and who for a variety of reasons convert these funds to their own use. Without precautionary measures, many embezzlers are able to carry out their scheme for years, resulting in thousands of dollars lost.

To protect your church from the devastating effects of embezzlement, first establish preventive policies that foster accountability and oversight. Guidelines for these policies are not limited to, but include:

1. Designating more than one person as responsible for finances.

a. Have one person responsible for depositing checks, while another writes checks and pays for
expenses.

a. The treasurer or chief financial officer should not receive or count church offerings.

b. Church offerings should be immediately deposited after services, if possible, and checks stamped
“for deposit only.”

c. Have two or more unrelated individuals count offerings after services. Rotate money counters so that the same individuals are not counting money together every week. Ensure that money counters have no shared business interests.

d. Have two ushers transport money at all times, especially when collecting offerings from a balcony, or other location that requires travel through an area where an usher could easily pocket loose bills (e.g. a staircase or closed-off room).

e. Encourage members of the congregation to use offertory envelopes instead of placing loose bills in the collection plate. Have extra envelopes available in the pews.

3. Protecting against electronic embezzlement

a. Limit the number of people who have access to electronic accounts.

b. Do not use the “automatic login” functions for online accounts.

c. Activate email and text alerts to notify members of the financial team when there is account activity.

4. Establishing regular accounting practices.

a. Hire a CPA to conduct audits of your church’s finances, especially if you suspect that funds have been misappropriated.

Establishing policies to protect against embezzlement and fraud will go a long way to protecting your church’s assets. But what do you do when you suspect or know that someone has misappropriated church funds?

Confront the person you suspect, with evidence, that funds under his or her control have been misappropriated. Some embezzlers will confess to taking the money. However, many will deny wrongdoing, or if they admit to taking the funds, will lie about how much they stole.

Arrange for an audit of the church’s finances to find out how much money was lost and to confirm (if possible) who stole the funds.

Make legally enforceable arrangements for repayment with the embezzler, (such as a validly executed promissory note) if possible.

Contact the authorities, including the police and, if necessary, the Internal Revenue Service.

Choosing to prosecute

While forgiving a repentant embezzler is an authentic Christian response, church leadership must not forget that a crime has been committed and that trust has been broken. Members of the congregation donate their hard-earned money with the understanding that the funds will be used for church ministries, not stolen by a thief and used for his own purposes, even if for a sympathetic cause (e.g. paying for hospital bills).

Even if the embezzler promises to return the money, church leadership should seriously consider filing charges. Too often, churches fail to prosecute, allowing embezzlers to steal with impunity, exposing other churches where that person may work to potential harm. Additionally, it is important to note that, in order to recover the amount lost, many insurance policies require a church to report embezzlement to the police.

A note on taxes: most embezzlers do not report their ill-gotten gains to the IRS, and are therefore liable for tax fraud, in addition to criminal liability. If the embezzler is an employee of the church, and the church is certain of the amount stolen, then it may be subject to penalties under section 6721 of the tax code for failing to report the embezzled income on an amended W-2 or 1099 form. However, if the church is not certain of the amount stolen by the employee, then it will not be penalized for failing to report the income. Whether to report the tax evasion to the IRS is a fact-intensive decision best made in consultation with an attorney.

Embezzlement is a crime that robs a church, not only of funds, but of its congregation’s trust. Protect your church by instituting financial policies that promote accountability and oversight, and if you fall victim to theft by a member of the church, take strong and appropriate action by prosecuting the culprit and seek to recover the lost funds. Contact an experienced non-profit attorney at Simms Showers if your church has fallen victim to embezzlement or would like to help in legally protecting itself against such an occurrence in the future.

Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum. Please contact Robert Showers at hrs@simmsshowerslaw.com or Elyse Smith at ems@simmsshowerslaw.com for legal advice that will meet your specific needs.